After Rapids of Refinance, Quality Mortgages Calm the Waters

It’s a little-known fact that California is home to the world’s largest and most productive water system, which serves more than 30 million people and irrigates more than 5.7 million acres of farmland. As massive as it is, however, it’s also one of the most unpredictable water systems.

Normally, massive amounts of snow melt off the Sierra Nevada mountains and rivers rage with water, filling the Central Valley. But in drought years, the state must rely on other sources, including reservoirs, groundwater and increasingly, seawater desalination plants. And invariably, water quality is impacted when water is scarce.

The mortgage industry is experiencing a very similar dynamic right now. For the past two years, as rates plummeted to historical lows—due largely to outside factors—originators and servicers have enjoyed the rushing rapids of origination volume. Now that rates are rising and refi volumes have slowed, organizations need to find other areas of growth, such as non-QM loans and mortgage servicing rights.

But like California’s water system, loan quality becomes an issue when volumes are slow—which means most organizations are facing some very significant decisions.

Where We’re Heading

One day, mortgage lenders, servicers and investors may look back on 2021 as a unique time in the mortgage industry. It was a period of many waves set off by external market influences and fueled by the Fed’s quantitative easing policies, which pumped $128 billion into the economy every month. With lower rates, an unprecedented number of Americans refinanced their homes, many of them twice, while millions of buyers competed with inflated home prices. Indeed, we may never see a market like it again.

Mortgage lenders can be forgiven for responding to these forces in knee-jerk fashion rather than focusing on planned, strategic growth—they had little time to do otherwise. Most hired feverishly to deal with capacity issues, dangling hefty bonuses for skilled underwriters and loan officers and removing overtime limits. Others outsourced some or all their processing work either to augment staff, increase efficiency, or both. By large, almost every organization saw revenue growth, but also thinning margins and quality degradation.

Today, the mortgage rapids are no longer raging, and a completely different picture is taking shape. Lenders are focused on preserving revenues, repairing margins, and, in some cases, reducing staff. Higher rates and inflation dropped loan volume more quickly than most of us anticipated. There was no six- to nine-month winddown. It felt more like a drop off a cliff.

Despite this new reality, many originators we talk to expect to grow. But the reality for them is, with refinance business gone, they are losing a third of their business, so they need to increase volume by more than one-third to grow. Many are now asking, “what other types of loans can we originate?” And for the most part, these “other types” are non-QM loans, which have a broader credit box and a higher risk profile. We’re now seeing originators roll out this higher risk product because they need the volume.

This is a night and day switch for most originators. When everyone was making hay with refi’s, quality was less important, because it was mostly about client retention. All the major underwriting factors were present and known for the most part, there was no real change to the borrower’s risk profile. With non-QM loans, the underwriting is completely different. Lenders can try to generate the same amount of volume, but the product mix is going to carry much more risk.

For mortgage servicers, opportunities crop up in the purchase of MSRs, because higher rates mean they’re making more money. But servicers also face additional risks, including heightened oversight and enforcement. This is happening at a time when the financial situation of many borrowers has not changed, and with the foreclosure moratorium now gone, an increase in foreclosures is on the horizon—in fact, it’s already starting. This also means loss mitigation efforts are picking back up as well.

Why Quality Matters More

When California experiences low snowpack and its rivers slow down, water quality becomes a major issue. In fact, it’s during dry seasons that California’s water quality suffers. Lower stream and river flow often result in a higher concentration of water pollutants, while rising temperatures in lakes and reservoirs lead to reduced oxygen levels that also impacts water quality.

Again, the mortgage industry experiences something similar, but for different reasons. One might think that with less volume, originators have more time to focus on improving loan quality. But the opposite is often true because they also must spend their resources on growing business.

Organizations are also under increasing pressure to maintain quality. Many federal and state agencies cut originators and servicers some slack during the pandemic to keep business moving. But that’s now over, and there’s a cost to both lenders and servicers who choose not to fall back on sound business principles of making sure what they’re doing is done right.

When mortgage rapids slow, state and federal regulators and investors have more time to think about quality, too. According to Matt McVay, director of quality control at The StoneHill Group, these agencies have become very active in recent months and are busy peeking over the shoulders of lenders and servicers, looking for incomplete or incorrect disclosures, miscalculated fees, and missed timelines.

“Investors are looking more closely at organizations as well, which may lead to increasing numbers of repurchases,” McVay says. “So are Fannie Mae and Freddie Mac, which are already encouraging originators to pass on feedback to appraisers and appraisal management companies (AMCs) and hold them accountable for the quality of products they deliver. Agencies and regulators are also on the lookout for bad loans and all types of servicing functions, and handing out fines, which means organizations will need to shift resources toward loss mitigation and creating sound defenses for repurchases and audits.”

Decisions to Make

Given the need to find new ways to generate business while spending more attention to quality, many organizations that outsourced quality control functions to third parties may be inclined to bring these processes in-house. Before doing so, however, they should think about the consequences of this decision and how it will affect their margins, and perhaps consider other options.

Keep in mind that, by internalizing quality control and using existing staff, organizations that may be causing quality issues will now be responsible for fixing them—on top of finding ways to generate more business. In doing so, they will also be deploying precious human resources on a function that is purely expense-driven and is directly in conflict with the of maximizing revenues and improving margins.

Lenders and servicers need to ask themselves what is core to their business—is it originating and servicing loans, or is it being a quality expert? It has been said an organization should never outsource a process or function that is a core competency. However, the inverse of that also bears truth. In other words, an organization should not internalize a process or function that is not a core competency.

For example, an originator may consider their post-closing processes core to their business. But is it really a core competency? Are they optimized to perform post-closing in a cost-effective manner, especially for new products such as non-QM loans? Is managing quality truly how they add value to the marketplace? Or are they better leaving post-closing to experts who understand the regulations and to whom post-closing is a core competency, so they can focus their attention on serving customers?

One way or another, every organization is facing these decisions. And invariably, the choices they make will affect margins. The good news is there is still time to think strategically about which path makes the most sense for their organization, unlike 2021, when raging waters forced many into making kneejerk decisions just to manage capacity. Today, they have more time and control to manage resources wisely and take ROI into account.

In most cases, continuing to outsource quality may be in an organization’s best interest. Doing so enables organizations to continue deploying their assets on activities that generate revenue rather than create additional expenses. If they already have a trusted quality control provider, that provider should be able to help identify new areas of risk when pursuing new business opportunities, whether these opportunities lie in loan products that demand stronger risk management or obtaining MSRs that require enhanced reviews.

It’s important to remember that, while every mortgage cycle is unique, our industry is in truly unprecedented territory. We’ve just left one of the most phenomenal origination markets we may ever see; one that was shaped and inflated by outside forces, and we’re now experiencing the highest interest rates we’ve seen in years, which will inevitably lead to a contracting and more difficult origination market and soaring MSR volumes.

Like any market transition, there are an equal number of challenges and opportunities. But like the millions of Californians who rely on clean water for their families and crops, no organization will be able to successfully navigate today’s mortgage landscape without paying attention to quality.

Of course, quality has never been unimportant. As Henry Ford said, “Quality means doing it right when no one is looking.” But quality is at least equally important when everyone is looking. And in 2022, you can be sure they will.

This article was written by Patrick Gluesing, EVP, Head of The StoneHill Group, a Sourcepoint company and was originally published on MBA NewsLink.

How the mortgage industry can mitigate risks in 2022

The past couple of years may one day serve nostalgic for mortgage originators. With record low mortgage rates and soaring homeowner equity, lenders had a historic level of refinance opportunities. It has been, in many ways, the best of times.

However, a completely different picture has emerged. Higher interest rates have caused rate/term refinances to evaporate and prompted the Mortgage Bankers Association to lower its origination forecast for 2022. Meanwhile, higher home prices are shutting out many potential homebuyers. In fact, in late 2021, the National Association of Realtors reported only slightly more than one-quarter of the purchase market were first-time buyers.

As a result, lenders are beginning to venture into new arenas, including non-QM lending. That means they’ll need to dig deeper into unique employment terms and income streams as well as credit complexities and new investor requirements that some underwriters have never seen before.

The picture is no less challenging for servicers, who face increased regulatory enforcement as a result of COVID and a more active market for mortgage servicing rights (MSR) trades that will foster greater risk. Every time there’s a trade in MSRs, there is an impact to the borrower and heightened scrutiny for the originator and servicer. Even something as simple as a new payment address has the potential to cause a missed payment and inadvertently put a dent into a borrower’s credit.

Yesterday’s QC is Not Enough

For both mortgage lenders and servicers, quality control must take center stage. Risk management, compliance and manufacturing quality in all phases of the mortgage chain should be on the minds of every organization.  

For originators, post-closing QC as it has been done over the past two years will not cut it this year. Origination QC, pre-funding QC, and targeted discretionary reviews should all be part of their production strategy.

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The five C’s of mortgage post-closing

For servicers, timeline management and making sure loan program and legal requirements are followed all represent high-risk areas. Attention to detail while boarding new loans will become paramount as well. Servicers that fail to provide consumers with the accurate information will run the risk of legal action, not to mention the potential for reputational risks.

As more loans end up in default following the pandemic, more bankruptcies, foreclosures and loss mitigation issues will follow. In fact, foreclosure filings were already up 39% in the first quarter compared to the previous quarter, according to ATTOM’s Q1 2022 U.S. Foreclosure Market Report. All default-related activities must follow a legal framework and protocols to maintain loan histories, timelines, and processes prior to and after boarding loans.

Now’s the Time to Ask for Help

The services that third party QC and due diligence providers can do today would represent a major investment if performed internally. While some financial institutions do choose to handle compliance and risk management in-house, many are opting for a trusted third party. And they don’t have to break the bank to get it.

In fact, QC and due diligence expertise from third parties can provide top shelf risk and compliance management at variable per unit costs. That means no need to train or retrain people on new technologies or performing reviews of purchase originations or servicing trades.

Looking forward, it’s experience that will win the day — which is exactly why Sourcepoint recently acquired The StoneHill Group, one of the most respected QC providers in the industry today.

Over the past three decades alone, we’ve seen some of the best of times and the worst of times in real estate finance. Thankfully, the lessons we’ve learned over the years helped produce the knowledge, expertise and technologies that we’re using to help mortgage organizations overcome today’s market challenges. The risks may be larger than ever, but we’re more than ready to take them on.

Featured Resource

Download the HFS Research: From outsourcing to innovation: partnering to revolutionize mortgage servicing that analyzes how outsourcing can be a gateway to innovation and adoption of emerging technologies in the mortgage servicing business.

New Year, New Challenges, New Services!

Consumer Loan Quality Control Reviews

  • Personal Loans (unsecured and secured)
  • Auto Loans
  • Solar Energy Loans
  • Construction Loans

You provide us your guidelines for each review, and we will customize our reviews to meet your audit scope. 

VA SAR Reviews

  • Desk Review of Property Appraisal-Collateral
  • Review of SAR Documents
  • Validation the SAR complied with all regulations and timeliness guidelines
  • Validate the VA Underwriter/Staff Appraisal reviewer completed the approval Documents per guidelines.

Home Equity Underwriting

  • A customizable mortgage underwriting solution
  • Underwrite to your lender guidelines and investor requirements
  • Over 15 years of experience underwriting loans

**We do not accept Texas Home Equity loans.

Want to learn more? Contact our sales team for more information at sales@stonehillgroup.com.

StoneHill Acquisition Completed

The StoneHill Group (TSG) is pleased to share that our equity acquisition by Sourcepoint, announced in early November 2021, closed on Friday, December 24, 2021, having received all regulatory approval.

This combination will help us to continue to grow and deliver best-in-class results for our clients while simultaneously opening new services under an existing master services agreement.  Sourcepoint, headquartered in Palm Bay, Florida, is one of the nation’s leading providers of outsourced mortgage services and solutions. With the addition of Stonehill’s expertise in Quality Control, Due Diligence and Fulfillment we strengthen our position as the premier provider of Originations, Servicing, Capital Markets, Title & Post-Closing services in the US mortgage market.

Please feel free to contact me, or your primary TSG contact, with any questions.

Kind Regards,


Patrick Gluesing

EVP, Head of StoneHill

Important Announcement About StoneHill’s Continued Evolution

Atlanta, GA – November 10, 2021

We are pleased to share some exciting news about our growth and evolution that was announced today.   Sourcepoint, a Firstsource company, has signed a definitive agreement to acquire our company and we anticipate the transaction to be closed by the end of 2021, subject to customary regulatory approval.

Inherent in this decision, TSG has been focused upon the benefits that this strategic transaction will offer to our clients and employees. Sourcepoint, headquartered in Palm Bay, Florida, is one of the nation’s leading providers of outsourced mortgage services and solutions.  Stonehill’s expertise in Quality Control, Due Diligence and Fulfillment are a great complementary fit for Sourcepoint and strengthen its position as the premier provider of Originations, Servicing, Title & Post-Closing services in the US mortgage market.  This combination will help us to continue to grow and deliver best-in-class results for our clients while simultaneously opening new services under an existing master services agreement.

Sourcepoint parent, Firstsource, is a rapidly growing organization with over 27,000 employees across the US, UK, India, and the Philippines. It serves industry leaders in Financial Services, Healthcare, and Communications, Media & Technology industries.

TSG’s entire management team, our current organizational structure and our operational, client services and sales contacts will remain the same.

During this transition, TSG is committed to providing the same high level of service that our clients have come to expect.

Please feel free to reach out to your primary TSG contact with any questions you may have regarding this announcement.

Kind Regards,


David Green                                      Patrick Gluesing

Chairman &CEO                                President & COO

Social Security Administration SSA-89 Form Change

The Social Security Administration (SSA) has released an updated version of their Form SSA-89 as of 12/2020.

Please begin using the new version as soon as possible. You have until September 30, 2021, to transition to the updated form.

You can access a copy of the new version by following the links below:

Form SSA-89 (12-2020)

2021 MERS® QA Deliverables – Are you Prepared?

2021 MERS® QA Requirement submission process is now open and in full swing.  Is your organization prepared?

Use the eQARequirements Landing Page on the MERS® Member Website to determine if your organization has one or more QA deliverables due by the MERS December 31, 2021 deadline.

  • MERS® System QA Plan?
  • MERS® eRegistry QA Plan?
  • Annual Report?

Be in the know! MERS has revised the Annual Report Review criteria for the 2021 review cycle.  Changes to the review include:

  • Member Information and MERS System Security
  • MERS System Transactions accuracy and timeliness
  • MERS Documents General and State specific requirements
  • Third-party reviewer must successfully complete the MERS Annual Report Reviewer Training

Not sure where to begin? Here at The StoneHill Group, we work with you every step of the way.  We have successfully aced the Annual Report Reviewer Training and are prepared to assist you.  No need for last minute deadline stress.  Now is the time to get started!

Have other MERS QA requirement needs?  In addition to the MERS Annual Report Review, our MERS Services include MERS System Quarterly/Monthly Data Reconciliations and now offering MERS eRegistry System Data Reconciliations as required for eRegistry System Participants.  Our data reconciliations include side by side field comparison for all required and conditionally required fields as outlined by MERS and identify MINs that are listed in one system yet not the other to assist in a complete reconciliation process.

The StoneHill Group for your MERS QA Requirement needs:

  • Annual Report Reviews
  • MERS System Data Reconciliations
  • MERS eRegistry System Data Reconciliations – New service for eRegistry Participants!

Are you not currently a Stonehill partner? Are you trying to do this on your own? No problem, let us help! To become a partner of Stonehill and take advantage of all the great services we have to offer or for more information please contact sales@stonehillgroup.com. While your here check out our other services as well. We look forward to working with you.

Important Agency Updates Regarding New Field Review Requirements

Fannie Mae has updated their field review policy “to better align QC processes with available collateral data and industry-leading collateral tools. The combination of standardized data and Collateral Underwriter® allows for a more robust QC process, which reduces or eliminates the need for a field review in most circumstances.” Therefore, the new policy replaces the current appraisal QC requirements with a new collateral risk assessment (CRA) for all loans selected for a QC review in the random sample. To comply with Fannie Mae’s requirements, a CRA will need to be completed on 100% of Fannie Mae loans selected for QC that do not have a Property Inspection Waiver.

Freddie Mac mortgages selected for post-closing quality control reviews, the Seller must ensure the appraisal, or if applicable, other property valuation, meets Freddie Mac requirements. The process is expected to utilize desk reviews, field reviews, automated valuation models, multiple listing service data, public records data, online tools and/or other appropriate methods to validate and ensure the quality of origination information.  For Mortgages originated with appraisals, the Seller must obtain a desk review of the appraisal report to ensure that it accurately reflects the market value, condition, and marketability of the subject property and that the Mortgaged Premises is adequate collateral for the Mortgage. To comply with Freddie Mac’s requirements, a standard desk review will need to be completed on all Freddie Mac loans selected for QC.


There have been no changes to their field review guidelines. Field reviews on these loan types are still required per their guidelines.

If you are currently a Stonehill QC Client, a communication regarding the above changes was sent out on July 15, 2021. If you did not receive this communication or have any questions, please feel free to reach out to Donna Rowe, your Client Services Manager, at drowe@stonehillgroup.com.

Freddie Mac Updates to Re-Verification Field Review Requirements

As part of the Freddie Mac Seller’s quality control program, for Mortgages selected for post-closing quality control reviews, the Seller must ensure the appraisal, or if applicable, other property valuation, meets Freddie Mac requirements. The process is expected to utilize desk reviews, field reviews, automated valuation models, multiple listing service data, public records data, online tools and/or other appropriate methods in order to validate and ensure the quality of origination information.

For Mortgages originated with appraisals, except as described below, the Seller must obtain a desk review of the appraisal report to ensure that it accurately reflects the market value, condition, and marketability of the subject property and that the Mortgaged Premises is adequate collateral for the Mortgage.

If it is determined that the characteristics of the property or the scope of the desk review is insufficient to determine the accuracy of the appraisal or the adequacy of the collateral, a field review performed by an appraiser unaffiliated with the origination appraiser or appraisal firm is required:

Note: The Seller does not need to obtain a field review during the quality control review if one was obtained during the origination process and adequately supported the eligibility of the Mortgage for sale to Freddie Mac.

For more detailed information we recommend that you review the Freddie Mac Selling Guide, Section 3402.5 (E)(i)(A)(B), as well as review with your legal department, if applicable.


New Origination and Servicing Agency Updates to COVID-19 as of March 31, 2021

The StoneHill Group continually monitors the mortgage industry for changes that impact our clients. Here are the most recent Stonehill and Agency updates.

Stonehill Updates Related to COVID-19

In 2020 the Stonehill Group (TSG) temporarily started placing a comment on loans where required post-closing tax transcripts were missing, due to the IRS delays around processing the tax transcript orders. Now that the IRS delays have subsided, TSG has returned to placing findings regarding tax transcripts on audits starting 04/01/2021.

Origination Agency Updates Related to COVID-19

March 31, 2021

Fannie Mae

Fannie Mae Updates LL-2021-03: Impact of COVID-19 on Originations

Updates Lender Letter (LL-2021-03) to extend the application dates for verbal verifications of employment and power of attorney flexibilities to Apr. 30, 2021. This will be the final extension for these policies. Applications dated May 1, 2021 and later will be subject to standard Selling Guide policies.

Effective: These temporary flexibilities became effective on Mar. 23, 2020 for all loans in process and are effective for loans with application dates on or before Apr. 30, 2021.

Many lenders are reporting difficulty in obtaining the verbal verification of employment (VOE) due to disruption to operations of the borrower’s employer. We expect lenders to attempt to obtain the verbal VOE in accordance with our existing requirements guidance. However, we will allow the following flexibilities: 

Written VOE: The Selling Guide permits the lender to obtain a written VOE confirming the borrower’s current employment status within the same timeframe as the verbal VOE requirements. An email directly from the employer’s work email address that identifies the name and title of the verifier and the borrower’s name and current employment status may be used in lieu of a verbal VOE. In addition, the lender may obtain the VOE after loan closing, up to the time of loan delivery (though we strongly encourage getting the verbal VOE before the note date). 

Paystub: The lender may obtain a year-to-date paystub from the pay period that immediately precedes the note date. 

Bank statements: The lender can provide bank statements (or other alternative documentation as permitted by B3-4.2-01, Verification of Deposits and Assets) evidencing the payroll deposit from the pay period that immediately precedes the note date.

Requirements for borrowers using self-employment income to qualify

Effective: These policies became effective for loans with application dates on or after Jun. 11, 2020. The updated requirements to obtain three business depository account statements (increased from two statements) with an unaudited profit and loss statement and to review the depository account statements to support the level of business revenue reported in the current YTD profit and loss statement were effective for loan applications dated on and after Dec. 14, 2020. All policies are effective until further notice.

Income Analysis

Self-employment income is variable in nature and generally subject to changing market and economic conditions. Whether a business is impacted by an adverse event, such as COVID-19, and the extent to which business earnings are impacted can depend on the nature of the business or the demand for products or services offered by the business. Income from a business that has been negatively impacted by changing conditions is not necessarily ineligible for use in qualifying the borrower. However, the lender is required to determine if the borrower’s income is stable and has a reasonable expectation of continuance.

Due to the pandemic’s continuing impact on businesses throughout the country, lenders are now required to obtain the following additional documentation to support the decision that the self-employment income meets our requirements:

  • an audited year-to-date profit and loss statement reporting business revenue, expenses, and net income up to and including the most recent month preceding the loan application date; or
  • an unaudited year-to-date profit and loss statement signed by the borrower reporting business revenue, expenses, and net income up to and including the most recent month preceding the loan application date, and three business depository account(s) statements no older than the latest three months represented on the year-to-date profit and loss statement.
  • For example, the business depository account statements can be no older than Aug, Sep, Oct. for a year-to-date profit and loss statement dated through Oct. 31.
  • The lender must review the three most recent depository account statements to support the level of business revenue reported in the current year-to-date profit and loss statement. Otherwise, the lender must obtain additional statements or other documentation to support the on-going nature of business revenue reported in the current year-to-date profit and loss statement.


NOTE: The year-to-date profit and loss statement must be no older than 60 days old as of the note date consistent with current Age of Documentation requirements.

Lenders must review the profit and loss statement, and business depository accounts if required, and other relevant factors to determine the extent to which a business has been impacted by COVID-19. The lender can use the following guidance when performing the assessment of business operations and stability and must complete the business income assessment based on the minimum additional documentation above.

Business Income Calculation Adjustment

When the lender determines current year net business income has been impacted by the COVID-19 pandemic and is

  • less than the historical monthly income calculated using Form 1084, but is stable at its current level, the lender must reduce the amount of qualifying income calculated using Form 1084 to no more than the current level of stable income as determined by the lender.
  • more than the historical income calculated using Form 1084, the lender must use no more than the currently stable level of income calculated using Form 1084 to qualify the borrower.

In all cases, qualifying income must be supported by documentation, including any supplemental documentation obtained by the lender.

Business Assets

We are clarifying that proceeds from the Small Business Administration PPP or any other similar COVID-19 related loans or grants are not considered business assets. Refer to B3-4.2-02, Depository Accounts for details.

Verification of self-employment

Effective: These policies became effective for loans with application dates on or after Apr. 14, 2020 and are effective until further notice.

When a borrower is using self-employment income to qualify, the lender must verify the existence of the borrower’s business within 120 calendar days prior to the note date. Due to latency in system updates or recertifications using annual licenses, certifications, or government systems of record, lenders must take additional steps to confirm that the borrower’s business is open and operating. The lender must confirm this within 20 business days of the note date (or after closing but prior to delivery).

Below are examples of methods the lender may use to confirm the borrower’s business is currently operating:

  • evidence of current work (executed contracts or signed invoices that indicate the business is operating on the day the lender verifies self-employment);
  • evidence of current business receipts within 20 days of the note date (payment for services performed);
  • lender certification the business is open and operating (lender confirmed through a phone call or other means); or
  • business website demonstrating activity supporting current business operations (timely appointments for estimates or service can be scheduled).

See B3-3.1-07, Verbal Verification of Employment for our existing requirements.

Fannie Mae Updates LL-2021-04: Impact of COVID-19 on Appraisals

Temporary appraisal requirement flexibilities

On Mar. 23, 2020 we began allowing temporary flexibilities to our appraisal inspection and reporting requirements. As described below, we will accept an alternative to the traditional appraisal required under Selling Guide Chapter B4-1, Appraisal Requirements, when an interior inspection is not feasible because of COVID-19 concerns. We will allow either a desktop appraisal or an exterior-only inspection appraisal in lieu of the interior and exterior inspection appraisal (i.e., traditional appraisal).

If a traditional appraisal is not obtained and there is insufficient information about the property for an appraiser to be able to complete an appraisal assignment with a desktop or exterior-only inspection appraisal, the loan will not be eligible for delivery to us. 

Use of lender variances and temporary appraisal flexibilities.

The appraisal flexibilities announced in this Lender Letter may be combined with existing lender variances unless Fannie Mae notifies the lender that it may not combine negotiated terms with these flexibilities.

Regardless of specific lender variances, only Fannie Mae-owned, limited cash-out refinance transactions being sold to Fannie Mae and purchase transactions are eligible for the appraisal flexibility. 

Desktop appraisals

For purchase money transactions when an interior and exterior appraisal is not available, lenders are encouraged to obtain a desktop appraisal rather than an exterior-only appraisal.

The minimum scope of work for a desktop appraisal does not include an inspection of the subject property or comparable sales. The appraiser relies on public records, multiple listing service (MLS) information, and other third-party data sources to identify the property characteristics.

When a desktop appraisal is performed, reported on Form 1004 or Form 1073, and submitted to us through the Uniform Collateral Data Portal® (UCDP®), the appraisal will be scored by Collateral Underwriter® (CU® All loans with a CU risk score of 2.5 or less will receive value representation and warranty relief under Day 1 Certainty®. With desktop appraisals, lenders will have the added risk management and efficiency benefit of being able to use CU to aid in the appraisal review process.

As described below, Freddie Mac and Fannie Mae have worked together to develop documents that include modified appraisal report language for the scope of work, statement of assumptions and limiting conditions, and certifications that must be used with these appraisal forms.

Exhibits for desktop appraisals

Each desktop appraisal report must include the following exhibits:

  • a location map indicating the location of the subject and comparables, and
  • photographs of the subject property. We recognize that it may be challenging in some instances to obtain photographs; however, it is expected that the appraiser utilizes all available means to obtain relevant pictures of the subject property.

Exterior-only inspection appraisals

An exterior-only inspection appraisal may be obtained in lieu of an interior and exterior inspection appraisal for the following transactions:

  • purchase money loans
  • limited cash-out refinances where the loan being refinanced is owned by Fannie Mae

Lenders will not receive value representation and warranty relief under Day 1 Certainty® for loans with exterior-only appraisals.

Completion reports (Form 1004D)

We require the Appraisal Update and/or Completion Report (Form 1004D) to evidence completion when the appraisal report has been completed “subject to.” For all loans for which a completion certification is not available due to issues related to COVID-19, (excluding HomeStyle Renovation loans), we will permit a letter signed by the borrower confirming that the work was completed. Lenders must also provide further evidence of completion, which may include photographs of the completed work, paid invoices indicating completion, occupancy permits, or other substantially similar documentation. All completion documentation must be retained in the loan file.

Virtual inspections for appraisals and renovation loans Updated Mar. 11

Beginning Apr. 14, 2020, appraisers may use virtual inspection methods to augment the data and imagery that is used for either a desktop appraisal or an exterior-only appraisal. All traditional appraisals require the appraiser to perform a complete onsite interior and exterior inspection of the property. A virtual inspection cannot be used as a substitute for the onsite interior and exterior inspection for a traditional appraisal. Additionally, an onsite interior and exterior inspection is required for the Appraisal Update and/or Completion Report (Form 1004D) used to confirm completion of renovation for HomeStyle Renovation loans.

Note: Virtual inspections using video and photographs provided by the borrower or contractor can be used to evidence renovation progress to disburse additional renovation funds can be used only for loans with application dates on or before Apr. 30, 2021.

Flexibilities for condominium project review Updated Mar. 11

Effective: Beginning Apr. 14, 2020, we offered additional guidance and temporary flexibilities for project eligibility reviews on condo projects. This flexibility is effective for loans with application dates on or before Apr. 30, 2021. Applications dated May 1, 2021 or later will be subject to our standard Selling Guide policies.

Waiver of project review

We are extending project review waiver flexibilities for loans with LTV ratios greater than 80% and up to 90%. This flexibility applies to Fannie Mae-owned, limited cash-out refinance transactions for owner-occupied condo units only. Second homes and investment transactions are excluded. When applying this flexibility, lenders must confirm the project meets the following, existing requirements:

  • the litigation requirements described in Selling Guide B4-2.1-03, Ineligible Projects, and
  • all policies in Selling Guide B4-2.1-02, Waiver of Project Review, for all loans with LTV ratios greater than 80% using the waiver of review for Fannie Mae-owned limited cash-out refinance transactions.

Lenders must provide Project Type Code V in the loan delivery data file for these transactions. The use of other Project Type Codes may result in fatal edits at loan delivery. 

Freddie Mac

We continue to work closely with Fannie Mae under the guidance and direction of the FHFA to address the impacts of the coronavirus disease (COVID-19) pandemic on Borrowers and the Mortgage origination process.

In Guide Bulletin 2021-7, we extended the effective date for some previously announced temporary flexibilities for Mortgages with Application Received Dates through March 31, 2021.

Temporary extension

We are further extending the effective date for Mortgages with Application Received Dates through April 30, 2021 for the following flexibilities:

Temporary extension with notice of discontinuance

We are extending the effective date for the flexibilities shown in the table below for Mortgages with Application Received Dates through April 30, 2021; Mortgages with Application Received Dates on or after May 1, 2021 must comply with the applicable Guide requirements. This is the final extension of these temporary flexibilities. 

COVID-19 temporary flexibilities
Employed income – 10-day pre-closing verification
Condominium Projects
Power of attorney (POA)



We have updated the COVID-19 Selling FAQs to provide additional guidance. The updated and new FAQs are marked with today’s date for easy reference. 

Servicing Agency Updates Related to COVID-19

March 16, 2021

Freddie Mac

Freddie Mac Announces Guide Bulletin 2021-8 (Temporary Servicing Guidance Related to COVID-19)


All of the changes announced in this Bulletin are effective immediately unless otherwise noted.


We are extending the foreclosure moratorium last announced in Bulletin 2021-6. Servicers must suspend all foreclosure actions, including foreclosure sales, through June 30, 2021. This includes initiation of any judicial or non-judicial foreclosure process, move for foreclosure judgment or order of sale. This foreclosure suspension does not apply to Mortgages on properties that have been determined to be vacant or abandoned.


To provide further assistance to Borrowers who enrolled in a COVID-19 forbearance plan prior to March 1, 2021, and who have reached the end of their 12-month term without having resolved their hardship we are extending the allowable term of the COVID-19 forbearance in accordance with the temporary requirements as described. These new requirements apply only to Borrowers who:

  • Have a COVID-19 related hardship; and
  • Are on an active forbearance plan for a COVID-19 hardship as of February 28, 2021.

For further information, please review the Freddie communication in its entirety.


We encourage Servicers to review the following COVID-19 resources:

Freddie Mac Single-Family web page on COVID-19 resources

Freddie Mac Servicing FAQs on COVID-19